Competition, Financial Innovation, and Commercial Bank Loan Portfolios

40 Pages Posted: 22 Mar 2008 Last revised: 1 Mar 2015

See all articles by Rebecca Zarutskie

Rebecca Zarutskie

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: November 2012

Abstract

I examine how U.S. commercial bank loan portfolios change in response to the rise of securitization markets and banking market deregulations over 1976 to 2003. Banks increasingly tilt their portfolios toward real-estate-backed loans. However, there are significant differences across banks. Larger banks and younger banks disproportionately shift their lending toward real-estate-backed loans, particularly commercial real-estate-backed loans, whereas smaller banks and older banks maintain greater shares of their loan portfolios in commercial and personal loans. When larger banks make more real-estate-backed loans, they charge lower interest rates, consistent with these banks lowering the costs of lending and expanding credit for borrowers. In contrast, smaller banks charge higher interest rates, consistent with these banks restricting lending to a select group of borrowers.

Keywords: Credit market competition, Securitization, Financial innovation, Lending specialization, Banking deregulation

JEL Classification: G21, L10

Suggested Citation

Zarutskie, Rebecca, Competition, Financial Innovation, and Commercial Bank Loan Portfolios (November 2012). Journal of Financial Intermediation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1142624 or http://dx.doi.org/10.2139/ssrn.1142624

Rebecca Zarutskie (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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